STAND. COM. REP. NO. 2864

Honolulu, Hawaii

RE: S.B. No. 2362

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 2362, S.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

The purpose and intent of this measure is to promote income tax equity.

More specifically, this measure:

(1) Requires the Department of Business, Economic Development, and Tourism to conduct a study on the impacts of eliminating the dividends paid deduction for real estate investment trusts; and

(2) Appropriates moneys to the Department of Business, Economic Development, and Tourism.

Your Committee received written comments in support of this measure from the Church of the Crossroads; Hawaii Regional Council of Carpenters; Hawaiian Council; Operating Engineers Local 3; Public Storage; and nineteen individuals.

Your Committee received written comments on this measure from the Department of Business, Economic Development, and Tourism; Chamber of Sustainable Commerce; Hawaii Appleseed Center for Law and Economic Justice; Hawaii Children's Action Network Speaks!; Indivisible Hawaii; Hawaii Laborers and Employers Cooperation and Education Trust; Host Hotels and Resorts; Land Use Research Foundation of Hawaii; NAIOP Hawaii; Nareit Hawaii; Park Hotels and Resorts; Tax Foundation of Hawaii; UNITE HERE Local 5; and ten individuals.

Your Committee finds that the majority of income received from real estate investment trusts by corporate entities doing business in the State is not taxed at the state level. These trusts enjoy a preference that exempts them from paying taxes on dividends paid on revenues generated in the State. Your Committee also finds that a study commissioned by the Department of Business, Economic Development, and Tourism in 2016 revealed that the majority of the real estate investment trust income taxes were paid to other states by out-of-state shareholders receiving dividends, meaning that Hawaii did not benefit from the bulk of the income generated by real estate investment trusts operating within its borders.

Your Committee believes that the study required by this measure is necessary to determine the potential impacts that eliminating the deduction may have on investments and revenue‑generating business activities.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2362, S.D. 1, and recommends that it pass Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

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DONOVAN M. DELA CRUZ, Chair